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Income from other sources

Income from other sources is a residual category used to classify income that is not classified taxed under any other head of income. Income from other sources must be calculated by the taxpayer based on the mercantile system used by the taxpayer, i.e cash basis or accrual basis. In this article, we look at income from other sources in detail along with list of allowed deductions.

Items Classified as Income from Other Sources

Apart from income that cannot be classified under any other heads, there are certain types of incomes which are always taxed under income from other sources. Such incomes are as under:

  • Dividends are always taxed under income from other sources. However, dividends from domestic company are normally exempt from tax, as the company declaring dividend pays dividend distribution tax.
  • Winnings from lotteries, crossword puzzles, races including horse races, card game and other game of any sort, gambling or betting of any form is classified as income from other sources.
  • Interest received on compensation or on enhanced compensation is taxed under the head “Income from other sources”.
  • Gifts received by an individual or HUF (which are chargeable to tax) are also taxed under this head.

The following types of income can be classified as Income from Other Sources, if it is not taxed under the head “Profits and gains of business or profession”:

  • Any contribution to a fund for welfare of employees received by the employer.
  • Income received by way of interest on securities.
  • Income from letting out or hiring of plant, machinery or furniture.
  • Income from letting out of plant, machinery or furniture along with building; both the lettings are inseparable.
  • Money received under a Keyman Insurance Policy including bonus.

Tax Deduction Allowed for Income from Other Sources

The following deductions can be claimed while computing income from other sources:

  • Commission or remuneration for realizing dividends or interest on securities.
  • Any sum received by an employer from employees as contribution towards any welfare fund of such employees is first included as income of the employee, and if the employer credits such sum to the employee’s account under the relevant fund on or before the due date (of such fund), then such amount (i.e., employee’s contribution) is deductible from the income of the employer.
  • Current (not capital) repairs, insurance premium and depreciation in respect of plant, machinery, furniture and buildings are deductible from rent income earned by letting out of plant, machinery, furniture and building, which are chargeable to tax.
  • A deduction of lower of Rs. 15,000 or 33 1/3% of such income is available in case of income in the nature of family pension (i.e., regular monthly amount payable by the employer to the family members of the deceased employee).
  • Deduction is available in respect of any other expenditure (not being in the nature of capital expenditure) laid out or expended wholly and exclusively for the purpose of making or earning such income during the relevant previous year.

Tax Deduction NOT Allowed

The following deductions cannot be claimed while computing income from other sources:

  • Personal expenditure
  • Interest chargeable and payable outside India on which tax has not been paid or deducted at source.
  • Amount paid which is taxable under the head “Salaries” and payable outside India on which tax has not been paid or deducted at source.
  • Sum paid on account of wealth-tax that is not deductible.
  • Amount specified under section 40A is not deductible.
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